According to a report from the Yankee Group alternative VoIP providers are set to lose 47% market share to MSOs and IXCs/ILECs by the end of 2005.

The report, titled Fighting Goliath: Can Alternative VoIP Providers Survive?, paints a rather bleak picture for alternative VoIP providers. As cable MSOs and incumbent local providers look to VoIP as a long-term strategy, the early-to-market leaders stand to lose ground in the race to offer VoIP services.

"While alternative VoIP providers such as Vonage and many of the Vonage-like providers have a first-to-market advantage, their lead will be short-lived," says Kate Griffin, Consumer Technologies & Services senior analyst. "In 2003, a number of these companies, dominated by Vonage, introduced VoIP phone service to consumers. At the end of 2003, these small startups comprised nearly 66% of the local residential VoIP market. Vonage dominated the market with more than 90% of all the subscribers in the alternative VoIP provider segment, or 61% of the local residential VoIP market."

"However, alternative VoIP providers lose market share every day to the major players. MSOs, IXCs and ILECs are joining the VoIP game, and their available resources dwarf even the largest of the alternative VoIP providers. The local VoIP market is already crowded with more than a dozen players vying for local consumers," says Griffin.

While the report conjures up a dim future for alternatve carriers, the fact remains that consumers can still be enticed with plans that offer innovative, unique features. By constantly evolving and offering new and exciting services, alternative providers can maintain some level of self-preservation. Still many of the early entrants into the VoIP service provider space will fall prey to the behemoths who are just starting to ramp up their VoIP business lines. In the end, I hope that a number of smaller, more nimble players will be able to execute a strategy that allows them to remain a viable choice for consumers.

This bleak report might be just the wake up call that these smaller innovators need to ramp up their offerings and cement customer relationships while they still can.